Friday, June 10, 2016

Borrowing for Quality of Life

Borrowing for Quality of Life (Day 30)

(This is the 30th day of 50-day journey of DepEd Undersecretary Rey Laguda as being serialized here with his permission, culled from his Facebook account - Blogger/owner)

Education reform is not just about designing curriculum, building classrooms and facilities, and hiring teachers and personnel. It’s also about strengthening the organization and the bureaucracy mandated to oversee the entire education system of our country. It is important to work towards improving the quality of life of the people who operate within the bureaucracy, and one of the ways to do this is to help them attain financial security.

image - pixabay

In an effort to protect teachers from excessive loan interest rates and abusive collection practices, DepEd revamped the Automatic Payroll Deduction System (APDS) in 2003. By re-accrediting Private Lending Institutions (PLIs) that will be allowed to use the facility and formalizing memoranda of agreements with them, DepEd was able to set stricter policies on the use of APDS, which include putting a cap of 18% to the allowable nominal interest rates (approximately 33% Effective Interest Rate). Prior to this re-accreditation, PLIs were charging interest rates that were as high as a whopping 120%.

In 2010, one of the first orders of business of the late Usec Francis Varelaa was to reduce the cost of borrowing and bring down the interest rates further to 7.5% for a 1-year term, 9% for a 2-year term, and 9.66% for a 3-year term (19.31 to 19.49% EIR). From 135 accredited PLIs in 2003, there are now 218. Aside from the usual commercial banks, cooperatives, and insurance companies, DepEd also worked out a loan program with Land Bank - the first time that a government financial institution got accredited in the APDS - to give teachers more options and access to financial products that suit their needs.

However, we all know that the efforts should not end there.

While borrowing per se is not bad, it is problematic when our people get into a financial position where they are no longer solvent. We are constantly challenged to craft policies and implement programs that will solve the problem of indebtedness. We need to conduct financial literacy trainings so that our teachers will learn how to manage their personal finances better. We should promote and instill financial discipline that will help them cope with emergencies, ease their everyday burdens, and prepare them for the future.

It would be ideal if borrowers invest in activities that can augment income and help them achieve financial independence but this is not always the case. Not everyone use their loans for productive means and not everyone invests in assets that generate revenue. DepEd personnel, in particular, work full-time and we can surmise that most of them borrow money for expenditures that do not necessarily improve their financial capacity in the long run.

There is more that needs to be done to improve the administration of this facility and to improve governance of arrangements to ensure that PLIs do not take advantage of our teachers but also to promote discipline among borrowers

If this facility is to be truly mutually beneficial, it should not end with just providing access to credit. While funds may be available, it will be futile if the borrower ends up being perpetually indebted. Likewise, the lender does not want to deal with a high rate of bad debts. The point of intersection should ultimately be the improvement of the borrower's quality of life. Borrowing is a means to improve one's quality of life with the help of a PLI that will look after the interests of the borrower.

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